The Hindu Business Line : Welcome grain export subsidy

IT IS HEARTENING that New Delhi has at last realised the need to establish India as a reliable and long-term exporter of foodgrains. The Finance Ministry has cleared a proposal to grant up to Rs 300 crore as export assistance for this fiscal and this should come as a shot-in-the-arm for the grains export trade. Export houses have been awaiting a clear policy pronouncement, especially on WTO-compatible financial assistance without which the country's grain export competitiveness would be so much blunted. The Cabinet Committee on Economic Affairs will, of course, take the final decision. A related announcement is that the Food Corporation of India will not sell rice or wheat to exporters until next June. This is necessitated by current circumstances — modest levels of rice and wheat stocks estimated at a little over 20 million tonnes and a somewhat disappointing kharif paddy harvest. Importantly, however, the trading houses are now free to source their requirement for the export market directly from farmers and not be subject to uncertainties of the FCI operations.

Admittedly, it was out of sheer necessity to liquidate the unmanageable levels of foodgrain stocks accumulated with the FCI — over 64 million tonnes in June 2002 — that the policymakers were forced to allow sale of rice and wheat at a subsidised rate for export. India shipped over 20 million tonnes of fine cereals over the last three years, earned substantial foreign exchange and made a mark in the global market. In addition, exports encouraged domestic players to invest in cleaning/grading facilities, something unknown until recently. Indeed, the expenditure on storage of grain stocks would have been far greater than that on subsidising exports. The need for a more proactive policy for export of foodgrains (primarily, wheat and rice), rather than using exports simply as an adjustment mechanism to dispose of surplus, has never been in doubt. It makes immense economic sense to reimburse grain exporters Rs 900 a tonne towards internal movement and ocean freight rather than incur Rs 2,200 a tonne as carrying cost.

Subsidies, per se, are not bad; they become undesirable when they distort the market, blunt competition and skew the playing field. Indeed, India's export subsidy is minuscule compared with that granted by major foodgrains exporting countries. Considering the current international market conditions, there is a distinct possibility of a revival of rice exports. By current reckoning, anything between five lakh and 10 lakh tonnes of rice exports can take place before the end of this fiscal. Strong ocean freight rates should help India tap markets closer home. On the other hand, despite the proposed subsidy, wheat exports are unlikely to happen considering the current high domestic price, seasonal factor (wheat harvest takes place in April-June) and low international prices caused by expected record output and rising stocks. Needless to add, it is of utmost importance that servicing the domestic market, especially the vulnerable sections, through a transparent and well-managed foodgrains policy, remains the focus of the policymakers.

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